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Software industry poised to get break from online tax

DENVER — The software industry cried hardship over a new sales tax on downloaded computer programs Tuesday, but the industry couldn’t provide actual data showing just how the tax is harmful.

Their inability to demonstrate hardship made little difference to House members, who sided with the industry anyway in voting to restore an exemption from the tax.

Industry experts told the House Economic & Business Development Committee that the tax is too confusing to figure, and it has stopped companies from adding jobs, encouraged them from buying new software and caused some not to locate in Colorado.

A few months ago, however, some of the same experts were touting how strong Colorado’s software industry has been despite the recession and how business-friendly the state is.

In a hearing on the measure, Su Hawk, president of Colorado’s Technology Association, and other industry officials said the tax caused some companies to leave Colorado for states such as Texas.

Texas, however, has the same tax.

Last fall, Hawk sent a news release touting a new e-book about the industry, saying it’s growing faster than any other in the state. The book includes comments from software company executives saying how well the industry is doing in Colorado and how business-friendly the state is.

But Hawk told the committee the tax has been hard on the industry since the Legislature approved it last year.

“This was essentially a penalty on hiring people in Colorado,” Hawk said. “Colorado’s competitiveness instantly took a free fall last year.”

Rep. Roger Wilson, a member of the committee, said such arguments are “bogus,” saying it’s impossible to back up those claims. Regardless, the Glenwood Springs Democrat, who works in the industry, said there are other reasons to support restoring the tax exemption.

The data from the downloads is information that has no physical characteristics, such as a computer disc, so trying to tax data over the Internet just doesn’t work, he said.

“The mechanics of having to tax something that has no physical point of delivery is the chief problem here,” said Wilson, who voted for restoring the exemption. “It’s something that’s hard to define and will be impossible to define in the future.”

The measure is expected to have an easy time getting through the rest of the Legislature because it’s part of a budget deal worked out between the House and Senate.

It heads to the House Appropriations Committee because the state would lose about $25 million a year in tax revenues.